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Here are a few tips before buying or selling. Click on one of these links for more information and assistance appropriate to your needs.

Sale & Purchase Agreement

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  • Who prepares the form?

    We use the Standard Form written and approved by the Auckland District Law society and the Real Estate Institute to protect both the buyer and the seller.

  • What happens to the deposit?

    We hold the deposit in a Trust Account. It is returned to the buyer if any conditions are not met and the sale falls through. If the sale is declared unconditional the deposit becomes part of the purchase price.

  • What happens when there is a lease of premises?

    The buyer's solicitor has 5 working days from receipt of all lease documents to approve the lease.

  • Is GST included in the sale?

    The agreement will stipulate the terms for payment of GST. However GST is zero-rated when the business is sold as a Going Concern and both parties are registered for GST.

  • When do I take possession of the business?

    Possession is normally given and taken on the Settlement date. If the purchase includes stock, for practical purposes a physical stocktake is usually carried out as close as possible to the settlement date.

  • Can I verify the items of plant I am buying?

    On receipt of the list of plant you should arrange to visit the business to verify the existence of each item.

  • What are the provisions for valuation of stock?

    After the stocktake is completed the value of stock can be determined by referral to purchase invoices or by any other method agreed between the buyer and seller. The agreement you sign will include provisions in the event that the value is less than or exceeds the value in the agreement by more than an agreed percentage. Generally, the buyer has 5 working days to accept or reject any excess stock.

  • Is Turnover warranted by the seller?

    The seller normally warrants that the Turnover figure was the Turnover done by the business during the seller's ownership. Obviously, the seller cannot guarantee that the buyer will do the same turnover because the seller will no longer be in control of the business.

  • Will the seller give me assistance or advice on running the business for a limited period after I buy it?

    Usually the seller undertakes to show the buyer how to run the business for an agreed period after settlement, introducing the buyer to suppliers and customers and passing on specific knowledge the buyer needs to successfully run the business.

  • Is the seller prevented from opening a similar business in competition with me?

    The seller agrees not to open up or work in a similar business for an agreed time and distance from the business. However this provision must be fair and reasonable to both parties given the circumstances.

  • What if there are Local Body or Government Department requisitions outstanding?

    These are the responsibility of the seller to make good even after settlement unless otherwise agreed between the buyer and seller.

  • When do I need to arrange insurance?

    You should arrange the appropriate insurance for the business before settlement to take effect on settlement date. Prior to that date insurance is the responsibility of the vendor.

13 Common Mistakes Business Buyers and Sellers Make

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  • Trying to buy or sell a business without reliable financial information. Flying by the seat of your pants can send you broke.
  • Not realistically valuing the business based on its profitability.
  • Buyers often fail to understand the basic nature of the business and how its operation fits in with their current levels of experience and competence. For example, does the business trade 24/7, will it fit within their lifestyle expectations, and are they comfortable dealing face to face with the public?
  • Failing to check if their life partner has the same enthusiasm for being in the business as they do. Relationships often founder due to business stress.
  • Buying a business; the operation of which exceeds your business skills.
  • Buying a business for a family member without them putting in any of their own money.
  • Not realising that your professional advisers are there only to check the details. Never rely solely on their opinions; they have probably never owned a business.
  • Conversely trusting armchair experts who have never run their own business.
  • When buying trying to “steal” the business by making an unrealistic offer only to be gazumped by a more astute buyer.
  • Dealing directly with the Vendor who has no idea what the business is worth and pleads confidentiality when you request financial information.
  • Trying to circumvent the broker after you have been introduced to the Vendor as a means of reducing the price.
  • Not purchasing adequate stock with the business to ensure its successful operation.
  • Taking too long to reach a decision.

Pricing a business

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"It's worth how much? What formula did you use to arrive at that figure?"

This is a comment we frequently hear from business people when they are advised of a recommended marketing price for the sale of their business. Our response is invariably: "Sorry but there isn't one, but we can show you how you can price your business for sale."

To arrive at a realistic prize for your business it is necessary to look at four important steps.

  • You can capitalize your pre-tax cash surplus using the last two years accounts - maybe average with this year's figures to date if available and reliable. Arrive at cap rate by "rating" the business on several points including time of industry, historical profits, length of history, spread off clients, reliance on a very small customer base i.e.
    • Is your turnover highly dependent upon one major client, the loss of whom would severely destroy your turnover?
    • Do your clients deal with you or with your company?
    • Do you as the owner of the business have any special skills that would be difficult to pass on to a new owner?
    • Will your business have an appeal to a broad range off prospective buyers?
    • Has your business the potential to grow?
    • How does it measure up against its opposition?
    • How difficult would it be for someone to start up a similar business?
    • Is your business being presented in the best possible way?
  • You can then compare your business to other similar sized businesses that have recently sold and also others that are on the market at present. You must always remember that your business is not the only business available for prospective buyers.
    • What cash surpluses did they have?
    • What was their selling price?
    • What prices are being asked for similar businesses at present?
  • By applying the information gathered above you may establish what you believe will be a suitable price for marketing your business. This price will be made up all three components;
    • Plant and machinery, fittings and fixtures. (Book Value)
    • Stock and work in progress. (Book Value)
    • Goodwill.
    Note that when the selling price is established the first two components will be subtracted leaving the value of the Goodwill. You can see by this that a reduction in stock and disposal off surplus plant and machinery will result in your achieving a higher price for the Goodwill of your business.

    It has been shown that attempts to arrive at a stand alone value for Goodwill have been unsuccessful. Goodwill only has value in relationship to the overall value of your business that you have calculated using the guidelines shown above.

    In the case of businesses that change hands frequently, such as lunch bars and cafés the availability of multi-year accounts is rare, so they tend to be valued on multiples of weekly turnover with adjustments being made for the security of the lease and rental etc.
  • At this point you will need to do a sanity check to establish whether the Goodwill figure represents a fair value for the cash surplus that your business generates. Does this figure compare reasonably with other businesses that have sold recently?
    • You must always keep in mind however that the Market alone will establish the true value of your business. The price agreed upon between you and a willing Buyer will be the real value of your business.

14 Steps We Take to Sell Your Business

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  • The first step involves an in depth meeting with our broker where you tell him or her about your business and your expectations in regards to all matters regarding the sale. Specific information such as timing, price, and confidentiality will be discussed and noted. At this meeting you will be given a list of information essential to the marketing process, that you will need to provide
  • The listing agreement appointing Realties Business Brokers Ltd as your sole marketing broker is prepared.
  • Your broker will collect your information as requested, collate it and review it. This is to ensure that the information is complete, current and relevant and in a form able to be presented to qualified buyers and their advisors at the appropriate time.
  • Your broker, with your assistance will prepare a summary of your business which provides pre-qualified buyers with enough basic information about your business should they show serious interest.
  • At this stage where appropriate business details are distributed amongst our team of experienced brokers to see if potential buyers are already available.
  • Your broker will then commence to market your business.
  • All respondents to any advertising are screened initially by telephone then by personal interview at which your broker will assess whether they are qualified for further consideration. In accordance with our agreement with you to preserve confidentiality no information is released to these prospects until they have signed a confidentiality agreement. At this stage your broker will pass over the business summary for consideration by the potential buyers.
  • If the potential buyers express serious interest in your business your broker will arrange with you, a suitable time to accompany the buyers to meet with you and inspect your business.
  • Following any inspections the potential buyers’ responses will be analysed and communicated to you. Our broker will follow up on all potential buyers following inspection to assess their ongoing interest in your business.
  • Any subsequent inspections requested by potential buyers will be arranged by our broker with your approval accompanied or not as you may specify.
  • When the potential buyers are satisfied with all of the information you have supplied your broker will stay in contact with them to ensure that their interest is maintained and when the opportunities to prepare Offers to Purchase arise your broker will complete the documentation and ensure correct signing before presenting them to you for your consideration.
  • On your specific instructions our broker will then undertake negotiations with the potential buyers to ensure that you receive the best possible price and the most favourable terms for your business.
  • Once mutual agreement has been achieved and the agreement has been signed in duplicate by you and the buyer we will ensure that each of the originals will be delivered to the relevant lawyers to ensure that all conditions are satisfied and the agreement becomes unconditional.
  • During this period our broker will assist both you and the buyer offering assistance on any matters relating to transfer of any leases, licensing issues, and follow the progress of the agreement, taking all practical steps to ensure the successful sale of your business.

How You Can Avoid Making Mistakes When You Sell Your Business

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When you are ready to sell your business don't fall into the trap of trying to do it yourself. Although you may be an excellent business operator and entrepreneur when it comes to selling your business you should seek independent advice and assistance from people who understand the complexities of selling businesses.

By choosing Realties Business Brokers, whose expertise and experience has made it one of New Zealand's most successful business brokers, your decision to engage them to sell your business will become a sound investment.

To help you identify some of the mistakes you may encounter should you decide to go it alone we have prepared a list of 12 common mistakes that are made by Business owners when selling their own businesses.

Some of the factors that may hinder your successfully selling your business include: maintaining confidentiality, establishing a value for your business, projecting your company's image as it may be now and as it may be in the future, getting rewarded for its potential and considering alternative deal structures to achieve your goal of selling your business.

When you decide to sell your business your goal should be to achieve the best possible price in the shortest possible time. For Realties Business Brokers this is one of our most important stated goals.

So what are these common mistakes?

  • Inexperienced in structuring deals

    Structuring deals to run your business is one thing, but having the experience to put a deal together to sell your business is something different. Doing it poorly may be expensive.

  • Failing to establish the new owner’s benefit

    The total benefits that you receive from the business may be the ultimate factor in establishing the final selling price of your business. If you do not establish these benefits clearly it is unlikely you will achieve the best possible price.

  • Loss of confidentiality

    As soon as you start promoting the sale of your business yourself, your employees, your customers and suppliers may start to seek alternatives which may adversely impact on your business. Your competitors will take whatever advantage they can gain from this knowledge.

  • Wasting time with unqualified buyers

    When you are selling your own business you may be passing on sensitive information to the wrong people. Deals with people who are not pre-qualified will invariably fail to mature.

  • Distracted from running your business.

    You will be better rewarded by focusing on running your business well rather than trying to sell it.

  • Limiting the pool of potential buyers.

    If your business is totally dependent upon yourself and the specific skills and qualifications you possess, you may be limiting the potential pool of buyers. Strategic restructuring of your business may enhance its appeal to a wider market.

  • Not providing credible information.

    Potential buyers want information backed up by proof. If you cannot provide sound financial information, customer base, competition and your history and how it measures up to your specific industry, selling your business may be difficult.

  • Establishing an unrealistic value for the business.

    Pricing your business for sale is one of the more critical factors involved in the selling process. At the end of the day the price will be established between you the vendor and the successful buyer, but if the promoted price is well out of line, the selling process may be lengthy and expensive.

  • Not having your business ready for sale.

    Preparing your business for sale should be well-planned. Factors such as: resolving any employee issues, disposal of surplus stock, up-to-date financial information, preparing documents for inspection (staff contracts, leases, supply agreements etc) should all be attended to be for you go to the market.

  • Lacking negotiating experience.

    The negotiations associated with selling a business are quite different from those in other fields. The range of issues to be considered is diverse.

  • Fail to acknowledge that Buyers have alternative investment options.

    Your business is not the only investment opportunity that buyers have to consider. Your business needs to be perceived as the best investment currently available. You are competing with passive investment, the share market, real estate and other similar business opportunities.

  • Fail to seek the appropriate professional advice and assistance.

    Selling your business as with any business decision, having the right advice accompanied by competent people will lead to a more successful outcome.
    • By choosing Realties Business Brokers to handle the sale of your business you will be avoiding all of those mistakes. Your broker will guide you through the whole process ensuring that you will obtain the best possible price in the shortest possible time.

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